The New Music Download Battle

The goal is to kill iTunes and any other service not directly owned by a label.

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After finally discovering that money (lots of it) can be made from music downloads, the RIAA and some of its members are rethinking the entire concept, and the iTunes deal in particular. At least a few RIAA members think that Apple is double-dipping, because it makes most of its money selling the iPod and, well, that's not fair! So the music companies are rethinkinguh, complaining aboutthe whole downloading model.

Let me make it clear. Apple sells a song on iTunes for 99 cents. Apple pays for the Net connection and the costs of running a huge server farm. It also pays for development costs and the design and maintenance of the Web site. Then it pays the record companies 70 cents for each song it sells for 99 cents. For their check, the record companies do not have to do any manufacturing, distribution, or pay any spiffs. And they don't have to deal with returns. Piracy also seems beaten by the security measures built into the system. And they still complain. Now I'm getting suspicious.

The current complaint is that the 99-cent deal is no good. There should be a variable-price model, whereby some very popular new songs should cost more. I'm thinking they should cost less, and the hard-to-find collectibles should cost morebut no. Jack up the prices for those songs the kids want and drive them back to piracy, I guess.

Let me tell you what I think they are up to. The goal is to kill iTunes and any online music service not directly owned by a label. The record companies don't like these systems for a number of reasons, not the least of which is that they work, proving that downloading music was a good idea from the beginning. I'm sure that still irks them, since it represents a decade-old "I told you so!"

I'm not convinced that the record companies' biggest concern is pride, though. I think it's bookkeeping. Just look at the history of the recording business and the numerous lawsuits and scandals involving various labels and the artists who worked for them. The artists claimedoften successfullythat the record companies didn't pay all the royalties that were due them. But to prove these accusations required investigative auditing, an expensive proposition.

It must have dawned on someone in the industry that they don't need a third party between the record labels and the artists. The third party, in this case Apple, will have computerized datareal and valid numbersthat is not controlled by the record labels. Numbers that could easily be carted out in a court case. Numbers that could show relative popularity and that may equate to, say, album sales at Tower Records. Too many numbers, especially in the hands of a third party, can't be good.

While it's arguable that the industry is cleaner than it has ever been because of the deep-pocketed corporations that own most of the labels, there are still skeletons in the closet. These companies don't need a third party with independent numbers.

When iTunes began, I doubt that more than a few record industry executives thought it would become a runaway success, dwarfing all other initiatives. It seemed like a lark, almost an afterthought. I'm certain that most were convinced it would be, at best, a middling, sketchy business they could point to and say, "Look, we tried that idea, and it's not that big a deal."

When it began to rock, the checks in the mail were great and everyone was surprised. Suddenly all sorts of other initiatives popped up, and someone woke up and noticed that all these middlemen with computerized numbers were surrounding the business. It wouldn't be as easy to screw over artists with this independent accounting everywhere.

Record stores must have put further pressure on the industry. They must have complained that they had supported the business longer than the computer geeks had, so how about the record companies showing them some loyalty?

You're going to see a slow shifting of the way music is downloaded, even if it means each label does it itself through some mechanism in which retail stores get a cut. They will do whatever they have to do to get those "numbers" back in-house, where third parties can't analyze them. In the meantime, expect more complaining. I think the RIAA almost wishes they had piracy to kick around instead.

It's no coincidence that all this moaning began just as Apple was rolling out its service in Japan. It looks as if it will be a big hit there, too. The battle over downloaded music is still under way.

John Dvorak is a columnist for PCMag.com and the host of the weekly TV video podcast CrankyGeeks. His work is licensed around the world. Previously a columnist for Forbes, Forbes Digital, PC World, Barrons, MacUser, PC/Computing, Smart Business and other magazines and newspapers. Former editor and consulting editor for Infoworld. Has appeared in the New York Times, LA Times, Philadelphia Enquirer, SF Examiner, Vancouver Sun. Was on the start-up team for CNet TV as well as ZDTV. At ZDTV (and TechTV) was host of Silicon...
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